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Market Recap: Tuesday, March 2

Stocks traded lower on Tuesday as the major indexes pulled back after rallying a day earlier. Each of the S&P 500, Dow and Nasdaq erased earlier gains to trade lower intraday. On Monday, the S&P 500 jumped by 2.4% for its best session since June 2020, while the Nasdaq jumped 3% to recuperate some losses after technology stocks slumped last week. Shares of Zoom Video Communications, a darling of the "stay-at-home" trade, jumped more than 7% overnight after the company delivered earnings results and guidance that far exceeded expectations, helping assuage fears of a slowdown as more in-person activities resume. Wells Fargo Investment Institute Senior Global Equity Strategist Scott Wren and Raymond James CIO Larry Adam joined Yahoo Finance Liv to discuss.

Video Transcript

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SEANA SMITH: A couple of minutes to go until the bell, all three of the major averages in the red. We want to bring in Scott Wren. Hes the Senior Global Equity Strategist at Wells Fargo Investment Institute. And we're also joined by Larry Adam, Chief Investment Officer at Raymond James, Thanks to you both for joining us today.

Scott, let me start with you. The selling action that we're seeing today, we have the NASDAQ off just around 1 and 1/2%, what's behind today's drop?

SCOTT WREN: Well, Seana, I think really it's an overall feeling and uncertainty about where interest rates are going and inflation. And-- and obviously, we've been in a long period here where rates have been very low, where inflation has been very low. Now there's a lot of conversation on the Street about-- about those moving higher.

In our opinion, they're going to move modestly higher. We're in the camp where, you know, early in a cycle, you see these things move higher. You see the curve steepen. That's a good thing. I think we're a long way away from the Fed getting worried about that. And we do not see a sustainable continuing rise in inflation after this initial jump out of the hole.

ADAM SHAPIRO: Larry, you would agree with that, because you don't see a Fed rate increase for, what, another three to four years?

LARRY ADAM: No, exactly. I don't think that will happen until 2023. If you look at what's happening right now, there will be some transitory inflation moving higher. But the reality is, I think it's going to be temporary. I mean, the Fed's been trying to get inflation back into the system for the last couple of years, actually the last decade, they haven't been able to.

So I just think it's going to be transitory. This economy is really not set up to really see this big spike in inflation. And probably the biggest thing we'd watch is wage-- wage pressures, and that's just not building right now at all.

ADAM SHAPIRO: All right, we're going to go to Jared Blikre, because he's keeping an eye as we count down to the closing bell. Jared.

JARED BLIKRE: That's right. We are returning to our lows of the day in some of the markets. And let's just check out what's happening. The Dow was green the last time I checked in with viewers here. Now it is in red territory, but still not a very low-- still a low range, not a very high volume day here.

S&P 500 down about 7/10 of a percent. And the NASDAQ off 1.6%, as is the Russell 2000. NASDAQ hitting session lows now. So let's take a peek inside the NASDAQ 100 and see what's happening. You can see those losses accelerating in some of the big names.

So we got Apple here, that's down about 2%. Microsoft, Amazon, those are each down about 1-- or more than 1%, and Facebook off 2%. And then notably, Tesla, we covered the EV space before off of those NIO earnings and some other events in there, Tesla off 4%. Chip makers having a rough go of it. You can see Nvidia right here down about 3% or so. All in all, not the worst day. We've seen worse than this.

But I want to point out something that's happening in the US dollar index, because we were heading higher earlier today, this was weighing on risk markets, but weren't able to punch through these levels. And now we have a fairly sizable reversal day. So this could set up more weakness tomorrow. I mean, you take a look at what's happened over the trailing three months in the US dollar, basically been moving sideways, hit the other-- upper end of the range. So maybe we head back down to the lower one.

Do want to check in what's happening with some of the other markets here. Crude oil just settled at lower than $60 per barrel for the first time in a couple of weeks. We got the OPEC+ meeting in focus, probably going to be pumping an extra 1.5 million barrels per day, which is nothing to sneeze at.

And then in the metals complex, we're seeing copper, copper's up another 2%. Let's see if we can get a better chart on that. Here's a six-month view, very close to those highs. Multi-year highs, by the way, so be keeping an eye on that.

And then before we go, we're going to take a look at our meme stocks, because we were talking about Rocket before, another couple of volatility hikes and guess what? It is now up 70%. And looking at some of the other movers in this space, Koss Corporation, that's in the bottom right, that's down 14%. Virgin Galactic down 11%.

We'll have to see what happens tomorrow, but going to be another interesting day in the meme space, I would bet. And finally before we head into the final bell, here's a look at our sectors. Only materials finishing the day in the green. Guys.

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ADAM SHAPIRO: We have hit the closing bell. There's the gavel. And here's where we're going to settle on Wall Street. It looks as if we're going to see the Dow close down 145 points. That's about 1/2%. But we're still up when you consider what we went through yesterday, up over 2%. S&P 500 also down almost 1% today, lost 31 points. NASDAQ lost 230 points, which was almost 2%.

Want to go back to our guests. And something that Jared was just saying, Doctor Copper up 2%, and that gives me a chance to bring back one of the guests who-- who's making the case that we're going to see GDP at around 4% this year when, in fact, you know, Larry, others have said we'd see it almost at 6%. Why do you seem to be reserved on that call?

LARRY ADAM: Yeah, I mean, we have about 4 and 1/2%, but I do think that there's upside risk to those forecasts. I mean, when you look at what's happened even so far this year, coming into this year most economists thought that mobility indicators would start to roll over, at least through the early part of this year. But if you look at restaurant bookings, hotel bookings, and even air traffic, they've actually bottomed at the end of last year and continued to move higher.

When you look at vaccinations, we thought you'd have 200 million people vaccinated by the middle of this year. I think that's going to prove to be conservative. And then when you see this fiscal stimulus package that will likely be passed in the next two weeks, one of the things that we saw earlier this year is that when-- when consumers have money in their pockets, they spend it. So I actually think that there's the recipe there for upside risk to our own forecast getting close to that 5% to 6% before it's all said and done.

SEANA SMITH: Scott, you mentioned in your note that the reopening process, that it stumbled a little bit as states have gone back to implementing meaningful lockdowns. But some easing, though, has occurred. Are you seeing any reason to buy some of those reopening trade names at this point?

SCOTT WREN: I think there's been some anticipation in those names, but certainly things are going to-- at least in our opinion, things are going to continue to loosen up from there. And if you look at the people who are unemployed, a huge number of the people who are still unemployed are in bars, restaurants, retail. That's going to be turning pretty quickly here.

I think you're going to be seeing some confidence building. Larry mentioned, you know, a couple of hundred million people vaccinated by the middle of the year. You know really, if you look at the stats at the current pace, I mean, you could have about 90% of the population vaccinated by sometime in October. So that's a pretty good number. People want to get out.

I think you want to be very conscious of the names that are going to benefit from a continuation of the recovery. If you look at a sector as a whole now, consumer discretionary, we've been overweight that for a long, long time. You know, consumer discretionary sector's not cheap.

Some of these smaller subindustry groups in there, you could argue, are worth buying the sector as a whole, though is not nearly as inexpensive as some of its components. So we like these recovery plays. That's the way we've been leading. That's what we've been adding to, and I think we'll probably continue to do that.

ADAM SHAPIRO: Scott, I want to pick up on what you just said about the recovery plays, because you and Larry manage millions and millions of dollars. You're looking at the big picture for your clients. But then people like us, just regular investors, we might hear something like TSA throughput, last Thursday, it was a million people. First time it's been a million people since the lockdown when we weren't in a holiday or weekend.

What does that mean? People are traveling. Does that-- would you then, Scott, say, OK, in the recovery play, look at airlines, look at cruise lines? Because the cruise lines are saying they're not going to start resuming really till June. But is now the time to maybe look at those as purchases?

SCOTT WREN: Well, you know, Adam, that TSA number, I like to look at that number myself, and we're finally seeing some bigger numbers. And I think that's part of it. But if you look at a subindustry group like airlines-- and, I mean, we like industrials. We like materials. That's kind of an overall global play with the industry groups that really are large cap within that. But you know, something like airlines, historically that's a trade. That's not necessarily an investment.

So for us, that recovery play is a good one. You're likely to see these numbers in terms of airlines increase, without a doubt, as people are more confident. So those types of plays are very interesting. But realize if you're looking from a sector basis, that is a very, very small subsector, subindustry group within that sector. That's not what's going to be driving the sector as a whole.

SEANA SMITH: Larry, what do you think is going to be driving the market action over the next couple of months? I guess, where are you finding opportunity?

LARRY ADAM: So getting back to the reopening trade, I think you do have to be a little cautious. There's been a lot priced into those stocks. And what I mean by that is if you look broadly at a lot of these industries that you guys are talking about, whether it's leisure facilities, airlines, hotels, resorts, those sorts of things, you know, when you look at the earnings, a lot of those companies aren't going to have earnings this year, and they're not expected to have earnings next year, yet their prices are either slightly below or even positive since-- since where they were pre-COVID.

So I actually think that those are the areas that have actually gotten more expensive in the market. I'd rather be in areas like health care, some of the tech areas where yes, they've had rallies, but the earnings power has really kept pace with that rally that we've seen. And I actually think that they're cheaper.

The other point I'd add is that selectivity is critical. So you were talking about airlines, I think you have to be very specific and look at what their business models are. Because if that airline, for example, has a lot more exposure to the business traveler or international traveler, I think that's a little bit further off. I think you're going to see more of the retail person going back into travel before you see that business and international travel really coming back to full-- full capacity.

ADAM SHAPIRO: Larry, what about energy though? That sector, obviously March of last year was terrible. Now for the first time the sector is positive because we hit the low last year, yet there's still room for growth as this global economy recovers. So is that-- I mean, that's not priced into expensive-- oil today roughly $60 a barrel.

LARRY ADAM: Well, we're more neutral on the energy sector, because our target for oil is around that $60 per barrel level. I think when you look at what's happened to oil, we've seen the demand side start to tick higher. But I think going forward, we're now going to see the other side of that, and that's the supply response.

And now that you're seeing the fact that oil is at $60, that means that you're going to see a lot more production here in the US. Because at that level, that's above the break-even level, so that incentivizes a lot more production here in the US. And then you're likely going to see OPEC start to increase their production. So as that supply ticks higher, I think that ultimately puts a lid on where oil can go from a price perspective. And I don't think that's going to continue to have its performance that it's had here over the last couple of months.

SEANA SMITH: Scott, when it comes to inflation, I think that's another thing that's been on investors' minds here over the last several months. We were just talking to our markets guest in the last hour about it. From your perspective, though, are you seeing any potential headwinds going forward in regards to inflation, at least this year?

SCOTT WREN: Well, I think for us, you know, our-- we came into the year with a little bit over 2%-- 2% in CPI as far as what we thought it would do this year. I think that's probably a little too conservative. So our interest rate where we thought the 10-year was going to end the year which was around a percent and a half, that's probably a little too conservative. So once again, I think it's-- it's really important to understand why these rates are going up.

And-- and if you're positive on the forward look, we know we're going to get some volatility, because people are going to be nervous about inflation, about higher rates. And if you have an opinion that they are going to only be modestly higher, you need to look at these pullbacks as opportunities to buy. The headwinds for inflation-- in all the developed world-- I mean, inflation is a global thing.

No longer, you know, Germany has one rate, US's is dramatically different, the UK's is dramatically different. Everybody's inflation rate in the developed world converged at a very low rate, so inflation is global. You need-- you need tight capacity. You need robust growth. And we're going to bounce out of that hole.

But for us, you know, that's a headwind. We're going to see plenty of good technological advances, as we have for really the last 20, 30 years, that help keep a lid on inflation. So for us, we can think of a lot of arguments why after this initial bounce out of the hole that we don't see inflation up and running and just, you know, the Fed reacting to that in a negative way.

ADAM SHAPIRO: Hold on right there. We're going to go to Jared Blikre. He's got earnings for us from HPE. Jared.

JARED BLIKRE: Yeah, nice boost in their full-year forecast here, and we'll get to those numbers in a second. First, I want to go over their first quarter results. Net revenue coming in and it's a nice beat, $6.83 billion, down slightly year-over-year, but it is higher than what Wall Street estimated, $6.74.

And in that, computing revenue, that was $2.99 billion. The estimate was for lower at $2.85 billion, so a beat there. Storage revenue, it looks like that's in line. intelligent edge coming in with a beat, up $806 million. Financial services revenue also beating, $860 million.

And then on the adjusted EPS side, their bottom line estimate was $0.41, but they beat that, came in at $0.52. Also, operating margin quite a bit higher than expected, 11.3%. Estimate was for 9.3%. Finally, cash flow from operations about $1 billion, and that is up $1 billion from the prior year period.

Now for their full-year forecast. They're seeing adjusted EPS at $1.70 to $1.88. And the low end of that range is actually the Street's estimate, so nice beat there. Free cash flow, another crucial key metric there, that's coming in at $1.1 billion to $1.4 billion for the full year. That's what they're seeing .

Previously, they only saw $900 million, and the estimate by the Street was at the low end of the company's range, $1.1 billion. So really all-- all-around pretty good report here. And we're seeing the stock now up about 2% in after-hours trading.

SEANA SMITH: Thanks, Jared. We want to get to another earnings report that we just got out, Nordstrom releasing its results. Emily McCormick has those numbers for us. Emily.

EMILY MCCORMICK: That's right, Seana. And we did see Nordstrom actually beat consensus expectations on the top and bottom lines in its fourth quarter results. Those net sales coming in at $3.55 billion for the fourth quarter ending in January. That was above estimates for $3.49 billion, although that did comprise a decline of 20% on a year-over-year basis, so still seeing this department store retailer under pressure due to the pandemic.

Now, taking a look at digital sales, those represented 54% of total sales compared with 35% for the same period last year. So as we've seen with a variety of retailers, Nordstrom also getting a boost here in the e-commerce portion of the division because of new consumer shopping trends. Now taking a look at the bottom line, we saw fourth quarter earnings per share coming in at $0.21. That was better than expected. Consensus-- consensus analysts had been looking for $0.12 per share.

And then taking a look at guidance for Nordstrom's fiscal year 2021, the company did note that while the timing of recovery of customer demand remains uncertain, the company did say that it expects revenue to grow by more than 25%, with digital representing approximately 50% of sales. So while we did see Nordstrom guide to returning to year-over-year revenue growth, perhaps it did underperform in terms of guidance compared to what some analysts had been expecting for this rebound. We did see shares fluctuate a bit between gains and losses. Right now just trading above the flat line. Seana and Adam.

SEANA SMITH: Name to keep an eye on tomorrow morning, right. Emily McCormick, thanks to you. And of course, our thanks to Larry Adam, Raymond James Chief Investment Officer, and Scott Wren, Wells Fargo Investment Institute Senior Global Equity Strategist.